Lawyers acting in their own cause and reaping the rewards in the process … Judges taking a dim view of lawyer inspired money-making litigation … Abuse of process … Charging fees to yourself … The Chorley exception on appeal … Daniel Ahern examines some recent cases
LAWYERS acting in their own cause with their own fee agreements have been a time-honoured money-spinning enterprise.
However, there are signs that the courts are applying a critical eye to lawyer-litigation schemes whose real purpose is to generate a large volume of fees.
Last year in Melbourne City Investments Pty Ltd v Treasury Wine Estates Justice Lindsay Foster in the Federal Court found that the plaintiff (MCI) engaged in an abuse of process.
It is also anticipated that soon the NSW CA will be invited to consider a case whereby a barrister had a fee agreement with herself in an action against a law firm.
MCI’s sole director and shareholder is solicitor Mark Elliott. His business model was to buy small parcels of shares in 157 ASX listed companies, so that he could have standing to be the lead plaintiff in a class action in the event the companies breached their continuous disclosure obligations.
The damages that individual shareholders would receive for such a breach was assessed by the court to generally be under $1,000.
Forster J concluded that Elliott did not intend to enforce his rights as a plaintiff and claim this small sum. Rather, he commenced the proceedings in order to reap large amounts of money through a complex arrangement where he was both solicitor and litigation funder for the class action.
In a series of contracts between companies in which he was the sole director and shareholder, and the aggrieved shareholders of listed companies, Elliott stood to cumulatively make a profit of up to 50 percent of the overall damages received by the class as a whole, if the action was successful.
Since 2014, Elliott has been the subject of several applications to have his multiple class actions, directed at different companies, stayed as abuses of process.
He had removed himself as solicitor and/or lead plaintiff in some of the cases, but Foster made a finding of fact in Treasury Wine Estates that Elliott retained a payment arrangement between himself and Portfolio Law, the new solicitors for the class of aggrieved shareholders.
In staying the proceeding against Treasury Wine Estates, Forster found that every superior court has an inherent power to prevent its procedures from being abused, and that the categories of abuse of process are not closed but can be informed by notions of justice and injustice and must reflect contemporary values.
He said it is improper to use proceedings as a means of obtaining an advantage for which the process is not designed.
“The [only] purposes which legal proceedings are designed to serve are the protection or vindication of particular rights or immunities, the maintenance or affection of particular legal relationships and the imposition of particular legal penalties, liabilities and obligations.”
As a plaintiff in these class actions, the vindication of Elliott’s legal rights was worth under $1,000 in each proceeding, but through external arrangements not related to the legal rights in question – that is, his costs agreements with the aggrieved shareholders as a solicitor and his litigation funding agreements with the shareholders – he stood to make millions of dollars.
His Honour found that Elliott’s purpose in commencing the class actions was not to vindicate his legal rights and claim the insignificant compensation of under $1,000 that would naturally flow from this, but rather to profit from these contingent arrangements.
While the onus to prove abuse of process is heavy and rests on the party alleging the abuse, Foster found that it had been established in this case and stayed the proceedings permanently.
In another case, Melbourne City Investments v Myer Holdings Limited, Justice Michael Sifris in the Vic Supremes referred to Foster’s Federal Court decision as a comprehensive statement of the law on abuse of process.
Sifris applied Foster’s reasoning unqualifiedly to Elliott’s class action against Myer, which also alleged breach of continuous disclosure obligations.
He permanently stayed the proceedings as an abuse of process. Others of Elliott’s class actions are substantially similar to the actions against Treasury Wine Estates and Myer, and some have also been stayed for abuse of process.
In a NSW District Court case, Pentelow v Bell Lawyers, Janet Pentelow claimed $44,880 for her own legal work as a barrister in the Local and Supreme Court, as part of a costs bill totalling $144,425.45.
Judith Gibson DCJ noted the skepticism expressed in some of the authorities she reviewed, relating to the Chorley exception, which allows solicitors who represent themselves in their own proceedings to claim indemnity costs for the time they have expended on their own case.
The exception creates an incentive for solicitors to self-represent and then charge the losing party – as part of their indemnity costs – expenses for the time they expended, which may not have been accurately recorded.
Judge Gibson highlighted the need for solicitors seeking to rely on the exception to enter into a costs agreement with themselves which prescribes their own rates, in order for the exception to operate more transparently.
The Chorley exception may not be applicable, or may be confined, where the solicitor retains other solicitors or counsel to assist them in conducting legal work in their own matter.
HH identified conflicting authorities in relation to the applicability of the Chorley exception where additional solicitors or counsel are used. Ultimately, this scenario did not need to be adjudicated as the judge made the straightforward finding that the Chorley exception was just that – an exception, that could not be extended to barristers. No NSW or High Court authority permitted this extension to be made.
It’s expected her decision will go on appeal, allowing the proper scope and existence of the Chorley exception to be examined further.
These cases serve, potentially, to limit the scope of profits that solicitors and barristers can make when having all the fun of acting for themselves.